Small Business Quiz #3

Information that the bank knows about your account that you do not know until reported by the bank: (4)

1) Amount of service charges taken from your account, (2) the amount of any direct payments made to your account by your customers (3) the amount of any interest received or charged, and (4) the amount of any checks that were returned because of nonsufficient funds

Information that you know about your account that the bank does not know because relevant transactions have not yet reached the bank includes: (2)

1) the number and value of checks that you have written and mailed but that have not received by the bank 2) deposits that you have mailed or made after bank closing.

Risk: Personnel

1. Employee theft: Misappropriation of business property by employees of that business. 2. Violations of Government Regulations: Employer violations that range from having an employee one time "forget" to use required safety equipment to failing to provide required accommodations for employees with disabilities to discrimination against a protected class. 3. Loss of key employees: Employees whose experience and skills are critical to the success of a business

The three primary causes of cash flow problems faced by a small business

1. difficulty collecting money due from customers 2. seasonal variation in sales (slow months) 3. unexpected decreases in sales (economic shock)

What is reconciling?

An accounting process that identifies the causes of all differences between book and bank balances.

Formula to determine is something is liquid?

Current ratio formula = current assets / current liabilities if answer is greater than 2, it is liquid

Replacement Value

The cost incurred to replace one asset with an identical asset.

Why would the current ratio matter to your banker?

The current ratio is an indicator of a business' ability to repay debt when it is due. Having debt (33,000) that is greater than assets (20,000) is an indication that a business is "illiquid" that is, it does not have enough cash readily available to be able to pay all the bills coming due within the next year.

Book Value

The difference between the original cost of an asset and the total amount of depreciation expense that has been recognized to date

Disposal Value

The net amount realized after subtracting the costs of getting rid of an asset from its selling price.

Fair Market Value

The price at which goods and services are bought and sold between willing sellers and buyers in an arm's-length transaction.

Whole of Life Costs

The sum of all costs of capital assets, including acquisition, ownership, operation, and disposal

Risks associated with specific business operations (3)

1. Events related to the property of the business 2. Events related to personnel 3. Events related to customers and others

Risk: Customers and Others

1. Injuries suffered while upon business property 2. Injury or damage that is caused during the use of the business's products

Risk: Property of the Business

1. Inventory can be stolen, machinery can break 2. Buildings can be damaged or destroyed 3. Land may become contaminated 4. Patents may be infringed upon